Wall Street Isn't Convinced Coal's a Winner in Paris Withdrawal

(Bloomberg) -- U.S. coal shares tumbled as President Donald Trump was said to be leaning toward exiting the Paris climate agreement.

Wait, what?

“You'd think everyone would be excited,” Michael Dudas, a coal analyst at Vertical Research Partners LLC, said by phone on Wednesday. “But there's red on my screen.”

Why aren't coal miners surging?

For one thing, according to Dudas, Wall Street sees more pressing matters facing U.S. coal here at home than the global climate accord. Those include the explosive growth of natural gas-fired power plants and renewable energy and the fact that U.S. electricity demand is no longer growing.

What's more, Trump's already convinced investors -- by rolling back regulations including one that was meant to protect streams from the effects of mining and picking climate-change skeptic Scott Pruitt to run the Environmental Protection Agency – that U.S. coal demand isn't about to fall off a cliff.

“The reality is, those were more important issues for coal producers and coal users in the U.S.,'' Dudas said.

On Wednesday, U.S. coal stocks including Peabody Energy Corp. and Cloud Peak Energy Inc. were swept up in a broad commodity selloff that included natural gas and oil rather than anything Trump was planning to do on the Paris accord.

The ICE Futures Europe Powder River Basin coal monthly contract had fallen 3.3 percent on Tuesday, the most since February, according to data compiled by Bloomberg. Gas futures closed Wednesday at $3.07 per million British thermal units, the lowest since April 25. Oil tumbled amid fears of a prolonged global glut.

Read More: Trump's Difficult Choice on Paris Climate Accord

“Commodities as a whole are getting smoked," Jeremy Sussman, an analyst at Clarksons Platou Securities Inc., said by email.

If Trump officially pulls out of Paris, the boost to coal stocks will probably be muted, Sussman said. It'd be a “continuation of his pro-coal stance, which he has been fairly consistent on.''

A ‘Blip'

There's also the fact that companies have to think decades into the future when deciding whether to build a new coal mine or coal-fired power plant. Against that backdrop, they may regard Trump's presidency as a "blip," said Hans Daniels, chief executive officer of Doyle Trading Consultants LLC.

“It might look like a favorable environment now, but what's it going to be like in 20 years, 40 years, 60 years?" Daniels said. “A lot of people still see the long-term trend as trying to reduce carbon emissions.”

Pulling out of Paris probably won't boost U.S. coal demand or prices -- that's more likely to come from changes in weather, economic growth or high gas prices, according to Daniel Scott, an analyst at MKM Partners LLC. Fortunately for industry players, they're in a better position than before.

“They're not the bankrupt or debt-laden monsters they were back in the day,” Scott said by phone.

To contact the reporter on this story: Tim Loh in New York at tloh16@bloomberg.net.

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Stephen Cunningham